Chancellor Alistair Darling is preparing an announcement before the stockmarket opens tomorrow morning, giving details of a plan to ease the banking crisis following high-level talks at Downing Street this evening.

The talks, which ended around 6.30pm, had been given added urgency after a day in which shares in the banks suffered another mauling, with HBOS plunging 41.5% to close at 94p a share and Royal Bank of Scotland falling 39% to close at 90p.

The chancellor met the prime minister, the governor of the Bank of England, Mervyn King, and the chairman of the Financial Services Authority, Adair Turner, at 5pm.

In a brief statement after the close of the meeting, Darling said he had been working with other officials "to put the banks on a longer term sound footing".

He also intends to address parliament tomorrow afternoon.

Among other banks, Barclays closed more than 9% lower and Lloyds TSB shares were down nearly 13%, as the lack of a coordinated rescue plan for the sector alarmed the City. The FTSE 100 closed slightly higher, ending the session up 16 points at 4605.2.

Last night, Britain's bank bosses had met with Darling to discuss a possible £50bn injection of equity, which is likely to form the centrepiece of the bail-out plan.

The talks centre on the idea of a part-nationalisation of the banking system through the injection of capital into the banks via preference shares, which take precedence over ordinary shares during a liquidation but do not give the holders any voting rights.

John Varley, the chief executive of Barclays, insisted this morning that he had not sought any capital from the government. RBS later issued its own denial, telling the London stockmarket that "contrary to press speculation, RBS did not make a request to government for capital".

HBOS has also denied it has asked for fresh funds while Lloyds TSB declined to comment.

But it is clear that the bank executives are anxious for the government to press on with any plan to recapitalise the sector and attempt to restore confidence in the high-street banks.

Darling disappointed investors when he did not make an announcement during his appearance in parliament yesterday and analysts have warned that the continued uncertainty is undermining the sector.

"Alistair Darling keeps saying that he won't take a rushed decision. But we need to see decisive action," said Manus Cranny of MF Global Spreads. "We are at a crisis moment."

The CBI piled the pressure on the government to provide a "circuit-breaker" to bring relief to the banking sector.

"There are three separate but related problems: a continued lack of liquidity in money markets, the erosion of bank capital resulting from the devaluation of their assets and the loss of confidence among depositors that their money is safe," said CBI deputy director-general, John Cridland.

And veteran City commentator, David Buik from Cantor Index, said the markets were "running scared" after last night's talks were reported.

He blamed the government for its handling of the crisis talks. "I've never seen more disgraceful financial management," he said. "All we've got now is speculation and fear. The market has collapsed."

Darling has been working on a rescue plan behind the scenes, but in public has been reluctant to discuss his proposals in detail for fear of unsettling the markets. In a statement to the Commons on Monday, he said: "It is right that we look at every aspect – liquidity, capital and regulation – with other countries and of course with the financial sector itself, but it would be irresponsible to speculate on the specifics of future responses."

Following his meeting with bank chiefs last night, the chancellor was due to have another meeting with them this afternoon ahead of his meeting with the prime minister.

Downing Street said that the meeting this afternoon involving Brown had been in the diary for some time. But it was not mentioned when parliamentary lobby journalists were briefed this morning about the prime minister's day.

In a further sign of the turmoil sweeping the world's financial markets, the Icelandic government seized control of Landsbanki, the second largest bank in the country, as it sought to avert a financial meltdown. The Russian government also pumped $36bn into its banking sector.

Asian recovery

There was a late recovery in Asia thanks to a shock interest rate cut in Australia. Heavy selling pushed Japan's Nikkei index down by 5% to its lowest point since December 2003, before it later recovered to close 2.2% lower at 10155.9 points

The federal bank of Australia astounded the markets by cutting interest rates by a full percentage point overnight, to 6%. Australia's central bank said it was relaxing its monetary policy in an effort to stop economic growth deteriorating as the mayhem in the financial markets continues. The move raised hopes of combined action by the world's central banks to try to stimulate the global economy.

"But if that is what the market is hanging its hat on, then it could be sorely disappointed," said Cranny.

The Bank of England will set UK interest rates on Thursday and business groups are already demanding a half-point cut to 4.5%.

European finance ministers met in Luxembourg today to discuss the crisis. Europe's failure to agree a coordinated rescue package for its banks was a major factor behind yesterday's sell-off, so there was pressure for progress - but the finance ministers disappointed by agreeing to lift bank deposit insurance to just €50,000, half of what some were looking for.

"Until such time as the banking sector is not totally reliant on central bank intervention and until trust is restored among the banks, there can be no measurable improvement in equity prices," warned Buik.